England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
ON APPEAL FROM HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
(HIS HONOUR JUDGE BOGGIS)

		Royal Courts of Justice Strand London WC2 Thursday, 13th October 2000

JUDGMENT
1. LORD JUSTICE OTTON: I shall invite Lord Justice Mummery to give the first judgment.
2. LORD JUSTICE MUMMERY: This is an appeal by Mr Edwin Hunt as the trustee in bankruptcy of Mr James Peasegood. The appellant is represented by Mr Stephen Davies QC. The respondent to the appeal is the former wife of Mr James Peasegood, Mrs Hannah Peasegood. She appears in person.
3. The order under appeal was made on an application by Mrs Peasegood issued in the Birmingham District Registry on 4th February 2000. Mrs Peasegood applied for orders that the bankruptcy order made against her in the Stoke-On-Trent County Court on 16th March 1998 be quashed. She also applied for an order that the statutory demand dated 22nd May 1997, on which the bankruptcy order was made, should be set aside. She sought consequential orders quashing the bankruptcy order and dismissing the statutory demand.
4. The application did not identify the jurisdiction being invoked by Mrs Peasegood. There is no reference to section 375 of the Insolvency Act 1986, under which the court has the power to review, rescind or vary any order made by the exercise of the jurisdiction under the relevant parts of the 1986 Act. Nor is there any reference to section 282 of the 1986 Act under which the court has power to annul a bankruptcy order if it at any time appears to the court (a) that on any grounds existing at the time the order was made, the order ought not to have been made or (b) that to the extent required by the rules the bankruptcy debts and expenses of the bankruptcy have since the making of the order been either paid or secured or to the satisfaction of the court.
5. Mrs Peasegood submitted that she was invoking the inherent jurisdiction of the court to set aside orders which have been made without jurisdiction. There is no reference to the statutory provisions in the judgment given by His Honour Judge Boggis in justification of the order which he made on 10th February.
6. Judge Boggis sitting as a judge of the High Court at Birmingham District Registry, made an order on Mrs Peasegood's application that:

"1. The bankruptcy order made against the respondent in Stoke-on-Trent County Court on 16th March 1998 be quashed.

2. The statutory demand issued 22nd May 1997 be set aside.

3. All further proceedings concerning the taxation of costs in No. 82 of 1989 are to be transferred to Birmingham District Registry to be heard by a Full District Judge sitting in Birmingham.

4. The order to pay dated 24th February 1997 is set aside."

7. Under that order made on 24th February 1997, the court notified the amount of taxed costs in relation to earlier proceedings, (which I shall describe in more detail later), that the costs had been taxed and allowed in the sums of £6,068 and £4,307.47. The notification was that the amount of those two sums was to be paid to the plaintiff, Mr Edwin Hunt, within 14 days from the date of that notification. Those sums have not been paid (nor have any part of them been paid) by Mrs Peasegood.
8. Judge Boggis gave written reasons for his order in his judgment on 15th February. He held was that the order of 24th February 1997 was a nullity and should be set aside. If that order was set aside, there was no liquidated debt which could be the subject of a valid statutory demand. If there was no valid statutory demand, there was no basis on which a valid bankruptcy order could be made. He said:

"If an order ought not to have been made, it must be set aside. The Trustee is not entitled to proceed to bankruptcy on the basis of a taxation which has never been properly concluded."

9. In holding that the taxation of 24th February 1997 had not been properly concluded, Judge Boggis accepted as correct Mrs Peasegood's criticisms of the taxation order. In essence her criticisms were that the trustee had failed in the taxation to take steps which had to be taken before a receiving party could obtain an order to pay. These arguments were based on the fact that the taxation had not been properly completed. There had been disbursements which had not been vouched. There had not been the necessary signature to the requisite documents. Therefore, Judge Boggis concluded, the order to pay had been wrongly issued, and it could not form the basis of the bankruptcy proceedings against Mrs Peasegood. So he should quash the bankruptcy order and set aside the order to pay.
10. On 2nd May, Aldous LJ granted permission to appeal. The grounds on which he granted permission were that it was probably arguable that the issues raised by Mrs Peasegood before Judge Boggis in February were res judicata and that her attacks on the order to pay in order to rid herself of the bankruptcy proceedings amounted to an abuse. The Lord Justice also stated as a further ground that, if the judge was exercising discretion under section 382 of the the 1986 Act, there was a reasonable argument that he failed to exercise his discretion taking into account the history of the case. Matters did not proceed smoothly to the hearing of this appeal because Mrs Peasegood launched an application to set aside the grant of permission. That was rejected by this court on 26th July.
11. Before I come to the points which have been made by Mr Davies in criticism of the judge's order and by Mrs Peasegood in defence of it, I should fill out more of the background history. It goes back many years. It has already been fully set out in two judgments of this court, one given on 1st May 1997 and another on 9th June 1999. Rather than simply referring to those judgments I shall, in an attempt to make this self-contained and coherent as a judgment, refer to such earlier events as are necessary to explain the submissions to this court.
12. It all goes back to proceedings heard between Mr Hunt and Mrs Peasegood in the Stoke-on-Trent County Court in November 1995. There was a dispute as to whether certain assets were assets in the bankruptcy of Mr James Peasegood or not. Those assets included the proceeds of some property. The upshot of those proceedings was that an order for costs was made against Mrs Peasegood. There was an appeal by Mrs Peasegood against the decision of His Honour Judge Harold in the Stoke-on-Trent County Court. That was dismissed by Chadwick J on 1st March 1996. The taxation proceeded. There were various hearings which were adjourned in the autumn of 1996 and at the beginning of 1997. The taxation resulted in the order to pay dated 24th February 1997. There were further appeals against that order to Chadwick J in March 1997. An attempt was made by Mrs Peasegood to obtain permission to appeal from this court. That was rejected for the reasons given in the judgment on 1st May 1997.
13. Following those hearings the statutory demand was served on 22nd May 1997. The demand, which was in the prescribed form, stated that Mrs Peasegood owed the sum of £10,375.47 and that that sum was immediately payable. It referred to the order of the Stoke-on-Trent County Court in proceedings No. 82 of 1989 in which Mrs Peasegood was ordered to pay him that sum by way of costs. Reference was made in the section of the statutary demand for particulars of debt to the order for payment of costs made on 2nd November 1995 and the order of 24th February 1997 taxing those costs. The total of £10,375.47 was the addition of the two sums already mentioned, which sums were to be paid within 14 days.
14. That demand was followed by litigious activity on the part of Mrs Peasegood attacking the statutory demand. Her application to District Judge Jack in December 1997 to set aside the statutory demand was unsuccessful. At the Stoke-on-Trent County Court District Judge Rowley made a bankruptcy order on 16th March 1998 based on that unsatisfied demand. Mrs Peasegood sought to have that bankruptcy order reviewed or rescinded or annulled. That was dismissed by District Judge Schroeder on 7th July 1998. She made an application to set aside the taxation order in conjunction with the bankruptcy order. That was unsuccessful, as were her attempts to obtain permission to appeal against those orders. The reasons for refusing permission to appeal against orders refusing to review, rescind or annul a bankruptcy order were given in the judgment of this court on 9th June 1999.
15. One approaches the judgment and order of Judge Boggis with some surprise in view of all the previous unsuccessful attempts of Mrs Peasegood to attack the steps and orders taken in these bankruptcy proceedings. Judge Boggis appears to have justified his orders on the basis that, in her attack on the taxation order, Mrs Peasegood was relying on new points. These points demonstrated to the judge's satisfaction that the taxation process had not been complete, as the disbursements had not been vouched for and the taxing officer had not certified the taxed sum by an appropriate signing order. The result was a nullity. Everything done on the basis of that order was also a nullity. The judge does not appear to have addressed himself to the question as to what jurisdiction he was exercising, or to the relevant principles of law relevant to the exercise of his jurisdiction.
16. Mr Davies cited a number of decisions which he submits place insuperably obstacles in the way of the exercise on which the judge had embarked. First, he relies on decisions of this court that a person against whom a bankruptcy order has been made has no locus standi to appeal against or attack the judgment of the court on the basis of which the bankruptcy order has been made. The fundamental principle is that when a person is adjudicated bankrupt he is divested of all interest in his property and liability for his debts. He has no right to challenge the judgments. That right vests in the trustee in bankruptcy.
17. This is made clear by the decision of the Court of Appeal in Heath v Tang [1993] 1 WLR 1421 at 1426C, 1426H and 1427B. Hoffmann LJ, with whose judgment the other members of the court agreed, referred to the general principle that a bankrupt does not have the locus standi to appeal against the judgment on which the bankruptcy proceedings are based. He said at 1427B that:

" ... the principle that the bankrupt is divested of an interest in his property and liability for his debts remains fundamental in the new code. The consequences for the bankrupt's right to litigate do not seem to us inconvenient or productive of injustice. The bankruptcy court acts as a screen which both prevents the bankrupt's substance from being wasted in hopeless appeals and protects creditors from vexatious challenges to their claims."

18. That decision was followed by another decision of this court in Royal Bank of Scotland v Farley [1996] BPIR 638. Hoffmann LJ, in his judgment (and two other members of the court agreed) said at 640H:

"The bankrupt had in fact no locus standi to make the application to set aside the default judgment in the first place."

19. That was a case not of an appeal but of an application to set aside a judgment. He continued:

"That, in my view, appears from the decision of this court in Heath v Tang [1993] 1 WLR 1421. The essence of that decision is that a bankruptcy order divests the bankrupt of any further interest in what debts he owes because it provides that he shall no longer be under any personal liability. An appeal from the judgment against him or an application to set aside the judgment against him is therefore a matter for his trustee, but does not concern the bankrupt."

20. I would also refer to what was said by Sir Thomas Bingham in Wordsworth v Dixon [1997] BPIR 337 at 338 where, having cited Heath v Tang, he said that that case:

"... clearly establishes that on the vesting of a bankrupt's estate in the trustee, the right to challenge a judgment which would take effect against the estate vests in the trustee."

21. The more recent decision of this court in Ord v Upton [2000] 2 WLR 755 applies the same principle in respect of the vesting of causes of action in the trustee in bankruptcy.
22. So the first point made by Mr Davies is that Judge Boggis ought never to have entertained the application made by Mrs Peasegood, because she was a bankrupt. She had no right, following the bankruptcy order, to challenge the order for the payment of tax costs on 24th February 1997. That is all that needs to be said. Judge Boggis embarked on an exercise which Mrs Peasegood had no right to initiate.
23. There are, however, other principles well settled by authority which would apply, if this were an application made by a debtor who did have a right to make it. It is well settled that the discretion of the court under section 375, that I may call the review discretion, and the discretion under section 282, which is the annulment discretion, are to be exercised in accordance with principles which the judge did not address. So far as I can see, he was not aware that any discretionary jurisdiction under these sections was being invoked. But assuming that it was, the position is that the review discretion under section 375 must be exercised judicially, having regard to costs and to the public policy of finality of decisions. It has been held that it is not to be used as a gateway for making late appeals. It should only be entertained, if a compelling fresh case is made out and a manifest injustice would be suffered if the power were not exercised. That is the effect of the decision of Lindsay J in Re Debtors (Nos VA7 & and VA8), Ex Parte Stevens [1996] BPIR 101.
24. In Commissioners of Inland Revenue v Robinson [1999] BPIR 329 Mr Peter Whiteman QC, sitting as a deputy judge of the High Court, emphasised that the power to review or rescind bankruptcy orders should be sparingly used. It should be confined to cases whether there are exceptional circumstances, such as compelling new evidence. As far as the annulment power under section 282 is concerned, it is also settled that the doctrines of res judicata and abuse of process apply to the exercise of that discretion. So, for example, if an application to set aside a statutory demand has failed, the unsuccessful applicant should not be entitled to re-run the same arguments, which have failed on that application, in opposition to the making of the bankruptcy order on the petition. What is needed is some change of circumstances which would justify the debtor making a further attempt to question the basis of the bankruptcy proceedings.
25. This is made clear by two cases. I refer to Brillouet v Hachette Magazines Ltd [1996] BPIR 518, a decision of Vinelot J against which permission to appeal was refused by Leggatt LJ. A decision to the same effect was given by this court earlier this year in Turner v Royal Bank of Scotland, which is so far unreported. The relevant passages are to be found in paragraphs 47 to 49 of the judgment given by Chadwick LJ. He referred, as earlier judges have, to the policy consideration in discouraging the waste of court time and the waste of party money and to the obvious purpose of the statutory scheme of bankruptcy proceeding through statutory demands to the making of a bankruptcy order. Those are the principles which should be borne in mind in considering the reasons given by Judge Boggis for granting Mrs Peasegood the orders which he did.
26. Mrs Peasegood has, in courteous and helpful submissions, both in writing and orally, sought to defend the judge's decision. She says this appeal should not be allowed. The position quite simply was that she was not applying to Judge Boggis to annul a bankruptcy order under section 282 nor, as I understand her, was she applying to review or rescind the order under section 375. She contends that she made her application under the inherent jurisdiction of the court, not to have the order annulled or reviewed or rescinded, but to have it quashed. She says that the courts have an inherent jurisdiction to quash orders made without jurisdiction. The order of 24th February 1997, which was the foundation of the bankruptcy proceedings against her, was made without jurisdiction, because the whole of the taxation process had not been lawfully completed to produce a valid order. She said it was a basic requirement for a statutory demand on which a petition is based that there should be a liquidated sum. There is no liquidated debt in this case. That could only be produced by a valid taxation. This taxation order was a nullity.
27. She went on to explain that she had not raised this point earlier in many of her earlier applications attacking the demand and the petition, because she had not been aware of it. They were, as stated by Judge Boggis, new points. She should be entitled to raise them. These points had only been recently picked up. She did not deny that she was under a potential liability to pay because of the order for costs, but until there is a proper taxation she owes nothing. She cannot be made bankrupt. These matters are spelt out in more detail in her skeleton argument.
28. I am unable to accept those submissions. This order ought never to have been made. I would allow this appeal for these reasons: First, Mrs Peasegood was not entitled to make the application on which the judge made the order. Any right she had to challenge the taxation order of 24th February 1997 was vested in the trustee in bankruptcy. Mrs Peasegood had no locus to appeal that order or to have it set aside or to have it quashed. It was a valid order, so far as she was concerned. She had no right to attack it.
29. Secondly, insofar as the judge was exercising a discretion, whether derived from statute or from some inherent jurisdiction, which I have been unable to identify, he did not exercise that discretion in a judicial manner. He failed to have regard to the principles laid down in the cases relating to res judicata and abuse of process. Mrs Peasegood not only had the opportunity but took the opportunity at every stage to challenge the taxation order, to challenge the statutory demand based upon it and to challenge the bankruptcy order based on the statutory demand. She ventilated her arguments at every level that was open to her, without success. It was wrong for the judge to exercise any discretion that he may have had to entertain this matter without reference to the long history of this matter in which arguments had been fully presented by Mrs Peasegood and entertained by the courts, including this court on two occasions on her applications for permission to appeal.
30. For these reasons I would allow the appeal, set aside the order made by the judge on 10th of February and restore the order of 24th February 1997 and the bankruptcy order of 16th March 1998.
31. LORD JUSTICE WARD: The order from which these proceedings flow was made by Judge Orrell nearly five years ago. There have, on my count, been thirteen occasions since that Mrs Peasegood battled with her former husband in bankruptry before the courts. I hope this is the last. For the reasons my Lord has given I, too, would restore the bankruptcy order and allow the appeal.
32. I should like to add that when the matter was before me in May of 1997 I expressed the fact that I felt sorry for Mrs Peasegood. I still feel sorry for her but she must now begin to realise that she is bankrupt and will remain bankrupt and there is nothing more she can do about it. I would allow the appeal.

33. LORD JUSTICE OTTON: I agree.

(Appeal allowed; order made on 10th February set aside; orders made of 24th February 1997 and 16th March 1998 restored; costs to respondent paid by petitioner in this appeal)